Wash Sale

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Wash Sale

The buying and selling of the same or a similar asset within a short period of time.

A fictitious type of arrangement whereby a Broker, upon receiving an order from one individual to purchase and an order from another individual to sell a certain amount of a particular stock or commodity, transfers it from one principal to the other and retains the difference in value.

For the purposes of Income Tax, losses on a wash sale of stock may not be recognized as capital losses if stock of equal value is obtained within thirty days prior or subsequent to the date of sale.

Various stock exchanges disallow this practice because the orders to buy and sell should be executed separately to the advantage of each of the broker's clients.

References in periodicals archive ?
This new tool will enable investment managers to find out which previously sold securities, if replaced through a purchase transaction, would result in a wash sale.
An opposite and less desirable result that might occur because of a wash sale is the conversion of a short-term capital loss into a long-term capital loss.
If the client follows a "buy-and-hold" strategy--which is consistent with the professional money manager's belief in not selling during market downturns--the goal is to sell these shares without triggering the IRC section 1091 wash sale rule.
When a loss from a wash sale is disallowed, the deferred loss is added to the basis of the newly purchased securities.
Wash Sales, Account Bifurcation, Account Transfers All Potential Pitfalls
FundTax expedites the wash sale calculation process, which is critical during excise season," said Steve McCabe, vice president, Integrated Investment Services.
Beware of the Wash Sales Trap (see sidebar, Page 18).
Not only can the Wash Sale Rule prevent you from taking a loss, but failing to account for wash sales can result in costly errors in cost basis calculations for both the stock sold at a loss and the security that triggered the wash sale," said Conlon.
Asset managers and their administrators are responsible for accurately accounting for and reporting on specialized tax events such as wash sales, qualified dividends income, and more," Peter Hess, senior vice president of the Global Accounts business unit for Advent, said.
GainsKeeper's enhanced short sale tax functionality automates the proper tax treatment of short sales, including special holding period rules and wash sale rules.
We get countless questions from people struggling to comply with the wash sale rule and other tax laws for capital gains," says Kaye Thomas, author of the book "Capital Gains, Minimal Taxes" and founder of Fairmark Press.